Have Life Insurance You Don’t Need? Consider Donating to Charity

If you have a whole-life or universal-life insurance policy that you don’t need, you might want to consider donating it to charity rather than cashing it in.

There are two ways to make such a donation, each of which has its advantages:

(1) Name the charity as the policy’s beneficiary. The key advantage to this method is that you retain control of the policy. Thus, you can always change your mind if you decide that your heirs need the money or if your feelings about the charity change. You’ll also get an estate tax deduction when the charity receives the money.

(2) Make the charity the owner of the policy. If you make the charity the owner of the policy, you can no longer change your mind. However, you’ll get an income tax deduction for the donation (which might be more valuable than the estate tax deduction now that the estate tax exemption is well over $5 million), and you’ll be recognized by the charity for having made a donation while you’re still alive.

Also, if you continue to pay the premiums on the policy after making the charity the owner, you may be able to take an income tax deduction for these payments as well.